Weathering the storm

General Manager, Warwick Ironmonger.

The construction industry has definitely experienced significant changes in the past year, including drastic swings in steel prices, market opportunities, contract and payment terms, staffing demands, and price expectations.

Negotiating our way through such dramatic changes has kept us all quite busy, and left few dull moments. Let us look at these issues in turn:

We have all heard of the woes of the main contractors in recent times with rising steel costs.

For specialist post-tensioning sub-contractors, the matter has been far more significant, with 65% to 80% of the total sub-contract costs typically related to steel products. The matter was compounded by the fact that not too many main contractors were completely transparent in the deals struck with owners in compensation for the rising steel costs.

Too often we were advised that "we know the steel price rise is hurting everybody, but imagine our position; where there is far greater exposure due to the larger reinforcing steel quantities that we are supplying, and the owner does not want to know about it.

Rest assured if we get some compensation from the owner, we shall pass this on to you." There were main contractors who did the right thing, yet in recent times when material costs have fallen, there have been a lot more advising the owner needs a discount!

With a sudden drop in liquidity in the market since late 2008, there has been a drastic reduction in the volume of work, and hence in the number of opportunities that lie ahead in the region. This has resulted in a change in procurement methods - from negotiated contracts to hard tender, and in payment terms - from large advances and payment of monthly claims within 14 days, to no, or little advance, and protracted payments.

The old term of "back-to-back" is becoming all too familiar. In previous years, receiving a post-dated cheque (PDC) issued within a short period of the monthly claim offered some security, but now the PDCs offered with all the right intentions by the main contractor often bounce.

Projects put on hold or cancelled have left the specialist contractor with few means to cover the cost of materials that were pre-purchased in times of rising steel costs. Everyone is no doubt quite busy negotiating settlements to minimise damage on their cash flow.

With a large percentage of planned, if not current projects, being cancelled or put on hold, comes the dilemma of staff retention and recruitment. Too many in the Dubai market appear to be all too quick to lay-off their staff - often dedicated team players who have got the company through the demanding times in the over-heated market of the not-too-distant-past - and to put all forms of recruitment on hold. Surely there is work out there for true specialists.

Going forward, there will be an underlying drive for cheaper prices, and to many a cheap price suggests a competitive design. However, with significant advances in computer software over the past years, and many claiming to have become design experts (overnight), there have been a lot of cheap prices in the local market for all the wrong reasons. The reality is that a poor design may result in a great price, because of reduced quantities.

Consultants and main contractors should be aware that reducing levels of supervision; supplying GI ducting with reduced wall thickness, ribbing and levels of galvanising; or supplying cheap anchors (that jeopardise safety) to cut costs is not the way forward.

Local market knowledge and exposure, significant design experience, a willingness to continually invest in people and to diversify both geographically and product wise (within a company's area of expertise), coupled with the support, intelligence, quality products and continued research and development of the Global Network of Experts that only the true post-tensioning specialists belong, will get us through these testing times.

Careful client selection, negotiation of acceptable payment terms ("cash is king"), cutting costs whilst upholding quality, service and a professional approach, understanding price expectations, rigorously chasing debts, and a little luck, will all be necessary for success amidst this economic crisis.

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